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Dovishness in the minutes of the Fed's July policy meeting softened the US dollar, and gold is climbing back towards a test of key resistance partly on 'stranger and stranger' developments in Washington.

Drama reaches fever pitch for the South African rand today as a secret-ballot confidence vote for president Jacob Zuma is scheduled, with a parliamentary debate and subsequent voting to start at 1200. That means dramatic two-way potential for USDZAR, depending on the outcome of that vote – with a Zuma ouster seen as ZAR-positive and a failure of the no-confidence vote as very ZAR-negative. Appropriately, USDZAR has triangulated over the last few months and is trading near the exact middle of that range before the vote.

Meanwhile, the critical monetary-policy focus is on European Central Bank president Mario Draghi’s speech at the Fed’s Jackson Hole conference later this month. The FT speculated that his speech could encourage the policy convergence trade that has served as the narrative supporting the large euro revaluation higher. For now, we wonder whether EURUSD will even managed a respectable consolidation to perhaps 1.1600, or if it will test 1.2000 first. Today could be the pivotal day on that account. Above 1.1850, and we could be off to the races for a test of that big 1.2043 level now rather than later – that was the low back in 2012, just before Draghi’s “whatever it takes” speech.

Elsewhere, the kiwi is getting worked down to the critical support zone against the USD if the NZDUSD rally is set to survive here. The Reserve Bank of New Zealand is unlikely to say anything supportive, but has the market already discounted this in the latest selloff? AUDNZD is also pushing into an interesting area toward 1.0800-1.0850. Overnight, Australia reported the strongest NAB business conditions survey result since 2008.

NZDUSD

NZDUSD has settled toward the pivotal 0.7300-50 zone before Thursday’s (or tomorrow evening’s, for us in Europe) RBNZ meeting. The RBNZ is unlikely to say anything remotely hawkish, and the recent kiwi selloff has priced in a nominally dovish message from the central bank. But is it enough? NZDUSD needs to rally in this area or the reversal after pulling to new highs of the cycle suggests the highs are in for now.

Source: Saxo Bank

The G-10 rundown

USD – is the consolidation over already? We don’t know, but if the USD can’t maintain altitude today, we could be in for fresh lows for the cycle, particularly against the euro. The Trump spectacle is an ongoing concern.

EUR – as noted above, the consolidation has been relatively shallow and one-off so far. Tactical price action looks pivotal today for whether EURUSD can make a charge at 1.2000 now rather than later.

JPY - the yen’s attempt to get interesting relied on a more notable correction lower in the bond market, which has failed to follow on from Friday’s modest selloff. 110.00 is the big focus for USDJPY traders. Former Bank of Japan deputy governor Kikuo Iwata says the BoJ will be lucky to reach 1% inflation, and says the bank should slow the pace of its bond and ETF purchases and consider targeting 5-year yields rather than yields out to 10 years. Iwata is seen as a possible replacement for Kuroda, whose term expires next April.

GBP – key pivot zone in GBPUSD is at 1.3000-50. Not sure what could serve as the next catalyst for sterling traders after last week’s dovish Bank of England meeting. 0.9000 is the key support for EURGBP if Brexit uncertainty keeps grinding down the pound.

CHF – the Swiss National Bank’s weekly sight deposits finally showed a drop, and this provides ammunition for CHF bears, particularly if the broad EUR rally picks up speed again.

AUD – the new NAB survey is supportive, although iron ore prices saw an ugly correction overnight. Interested in the relative merits of AUD against NZD over the RBNZ meeting tomorrow, with a preference for a rally.

CAD - too early to tell whether the recent consolidation has run its course – certainly the US-Canada 2-year interest rate spreads have moved little since going all the way to about -5 bps. That same spread topped out at +60 bps in the spring. It’s hard to imagine at this stage that the Bank of Canada tightening from its 0.50% level would outpace expectations from the Fed.

NZD – see above. Generally still seeing downside risks for the kiwi as the RBNZ is likely to maintain its message that it doesn’t see tightening until 2019, even as the market has second-guessed this.

SEK – prefer EURSEK to head back lower, but there's a distinct summer doldrums feeling at the moment for SEK.

NOK – Norway’s credit growth indicator reached a new high, suggesting economic activity is humming again in Norway and higher oil prices are certainly not hurting. The Norwegian rate outlook is moribund, though we still look for EURNOK to settle lower if current conditions persist.

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